Sales, Marketing, & Entrepreneurship

Trust and Business Relationships

August 2012 Partnership 1 Comment

Trust is central to business relationships, that most everyone would agree.  But what exactly does trust mean?  What are the dimensions of trust?  How related are trust and decisions?  And, more to the point for this journal, how does trust affect customer purchase decisions?

Mayer, Davis, and Schoorman examined the first of these issues in a 1995 award winning piece of academic research.   After reviewing research articles across psychology, consumer behavior, business negotiations, economics, and several other fields, they developed a concise definition of interpersonal trust within mentor/mentee or boss/subordinate relationships.  After reviewing their work, I believe their findings can be fruitfully used in sales and marketing as well as the customer-vendor relationship.

Trust is…

In striving to distinguish trust from other aspects of human interaction, Mayer et al. defined trust as “…the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party”.

Notice this definition of trust implies risk taking.  To be vulnerable to the actions of another is to be in a state of risk, and trust requires the willingness to be vulnerable to the actions of another.  Risk taking is inherent in relationships.  There are many approaches to managing performance risk that do not imply trust necessarily.  What is unique about trust from these other methods is that trust implies a reduced effort in monitoring.

For instance, two individuals may cooperate on an effort without trusting each other.  Each may spend a tremendous amount of time reviewing and critiquing each other’s contribution to an effort, and the review and critique may even be positive and constructive.  Yet cooperation alone doesn’t rise to the level of trust.

Alternatively, a person may be able to predict the performance of another, but that doesn’t necessarily imply trust either.  Predictable behavior can be the result of the incentives and controls under which the person operates.  Controlling and incentivizing people may reduce performance risks, but one wouldn’t really call coercion trust.

Similarly, confidence in the actions of another is not the same as trust.  Confidence may imply that performance risk is not even considered.  Trust implies that performance risk is inherent in the decision to trust another.  Or, stated with higher contrast, a person can be completely confident that another is not trustworthy.

In trusting someone, the trustor is expecting a trustee to do perform some positive action, is acknowledging there may be a performance risk, and accepting that the performance risk cannot be completely mitigated.

Dimensions of Trust

Given this definition, Mayer et al. proceed to identify the elements upon which trust is developed.  Three elements were found to parsimoniously capture most researchers’ definitions of trust. These elements are Ability, Benevolence, and Integrity.

Each of these elements, ability, benevolence, and integrity, are fundamental to trust.  Each is unique, and none is excludable.

Ability refers to the skills, competencies, and characteristics that enable a person to perform within some specific domain of tasks.  This element implies that trust can be domain specific.  That is, one may trust someone in certain situations but not trust them in others. These situational specific differences in trust reflect not the quality of the relationship, but the fact that a person may have a high ability in certain tasks but lack ability in others.

In terms of building trust, identifying ability as a key element of trust implies that one must first convince someone of their ability before they expect to be trusted.

  • Can you do what you say you will do?
  • Do you have a track record of performance within the area required?
  • What evidence supports your claim to competency and ability within the domain of concern?

Benevolence refers to the willingness to help aside from the profit motive.  This element implies that the person being trusted has some underlying attachment to the trustor.  That is, the trustee actually cares about the outcomes for the trustor.  Notice that benevolence doesn’t require giving away something for free, but it does require caring about more than the amount of money, power, or other assets you can take from the situation.

In terms of building trust, identifying benevolence as a key element implies that one must truly care about the outcomes of the other.

  • Do you understand the other’s situation?
  • Do you hold the other’s interests as dear?
  • Are you seeking to make their life better?
  • Are the actions you will take in the best interest of the other?

Integrity refers to adherence to a set of principles which the trustor finds acceptable.  Although I have at times substituted the word honesty for integrity, integrity is a more powerful issue than honesty.  Integrity implies that actions will be taken from and evaluated against a set of principles.  Actions which go against the trustee’s principles will not be taken.  Those that are congruent with the trustee’s principles can be taken.  The perception of integrity enables the trustor to believe actions will be taken without monitoring or coercion, and therefore enables trust to mitigate performance risk.

In terms of building trust, identifying integrity as a key element implies that one must hold and communicate their principles.

  • What will motivate or guide your performance?
  • Are you able to express your performance principles?
  • Can you state what you wouldn’t do because you find them wrong on principle?
  • Is this set of principles ones that others would agree with?

Trust Strength and Decisions

The importance of trust is its ability to enable the trustor to make a decision which gives responsibility to the trustee without fully monitoring or controlling the actions of the trustee.  This decision involves risk: the negative risk of non-performance as well as the positive risk of strong performance.

Mayer et al. suggested that we can measure trust in relation to the performance risk.  If non-performance presents few challenges, little trust is required prior to the granting the trustee the responsibility to perform.  If non-performance implies great financial and personal loss, high trust is required prior to the granting the trustee the responsibility to perform.

Hence, the strength of trust one has in another influences the level of responsibilities one will grant to another.

We can even diagram this.  Consider trust as a three dimensional object on a radial diagram.  Next, consider the level of risk associated with a decision to grant responsibility to a party.  If the perceived position of trust along each element of integrity, benevolence, and ability exceeds the perceived risk inherent in non-performance, responsibility will be granted.  If not, other performance management techniques are required to secure responsibility, or worse, responsibility may be withheld in total.

Trust and Sales & Marketing

While Mayer et al. examined trust within an organization, Zaheer, McEvily, and Perrone extended the analysis to inter-organizational relations, such as vendors and customers.

Zaheer et al. found that interpersonal trust is distinct from inter-organizational trust and that one feeds the other.  Moreover, the same elements used to evaluate trust at the personal level can be used to examine trust at the organizational level.

(No real surprises in Zaheer et al. findings.  However, business research relies on the science of creating and testing hypotheses.  Empirical studies enable one to prove or disprove commonly held beliefs.  As such, Zaheer et al. research has high confirmatory value.)

In keeping with other academic research and known business behavior, Zaheer et al. found that firms that engender greater inter-organizational trust with their customers reap advantages in reducing the cost of managing the relationship and in growing the relationship into a higher profitable position for both parties.

In other words, trust at a personal level matters to trust at the organizational level, and developing trust is required if you want to take on more responsibility.  So if you want permission to solve a bigger problem in exchange for more cash, that is, if you want to grow the profitability of your customer base, you better prove ability, extend benevolence, and demonstrate integrity to build trust.

 

Note of Interest and Holdings: At the time of writing, the author is not currently a direct consultant to nor investor in any of the firms listed in this article.

References

Roger C. Mayer, James H Davis, and F. David Schoorman, “An Integrative Model of Organizational Trust”, The Academy of Management Review, 20 (3), July 1995, pp. 709-734.

Akbar Zaheer, Bill McEvily, and Vincenzo Perrone, “Does Trust Matter? Exploring the Effects of Interorganizational and Interpersonal Trust on Performance”, Organization Science, 9(2), March-April 1998, pp. 141-159.



  • Richard J Orlando

    Tim- first met you at PPS Orlando last year. I’m still using your points about “trust” to prove point that B2B companies CAN place a value on business relationships. In sales situations where “price, tech features and benefits” between the last 2 competitors are similar in the customer’s viewpoint, following your “Three Elements of Trust” can make the difference in winning the deal. It certainly resonates with our clients.
    Dick Orlando, COO & President, LeveragePoint Innovations, Inc.

About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
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